Last fall, Deena Katz, she of Texas Tech and Evensky & Katz, flagged me down at the FPA National Conference and said, "You have to talk to Matt Lynch. He's changing everything and no one really understands." Wow, I thought, who knew that a tweak to advisors' cost structure could change everything? How silly-of course it does. And of course there's more. Because what the pioneering new cost-structure at Lynch's firm, Cincinnati-based Capital Analysts Incorporated (CAI), does is empower advisors to do their best work.

In 2009, while the industry was in shock, CAI introduced a new flat fee program for its affiliated advisors called Wealth Manager Access: one fee, ranging from $40,000 to $120,000 per year, determined by the amount of assets and advisors in the practice. The basic fee covers three advisors, and additional desks cost $24,000 each. And that's it. Advisors can be reps, RIAs or dually registered. There are no extra charges for technology, marketing, compliance, licensing, E&O coverage. No quarreling over payouts or chargebacks. CAI eliminated fees for custodying IRAs, REITs and alternatives.

"Advisors tend to absorb these fees, so we just got rid of them," says Lynch, who is president and CEO of CAI. As of December, he was working on eliminating ticket charges. The point is that advisors should be able to focus on the top line, while they face less uncertainty on the bottom.

One of Lynch's previous positions was director of the business consulting group at Moss Adams. When he was there, he said, he asked advisors to prepare an income statement, then start subtracting the B-D's miscellaneous fees. No matter what payout the advisor was getting, at the end it turned out to be about 73%. "All people were doing was squeezing the balloon," he says. The charges weren't going away. He sees broker-dealer fees as a transparency issue for advisors, much as many advisors see their own fee structures as a transparency issue for clients.

But here's another point, one I didn't think about until recently: The flat fee encourages a best-practices approach to providing financial services. For instance, researchers routinely find that top advisors put customer relationship management software at the center of their workflow. Practitioners get their CRM software as part of their package, and therefore can reach out to clients more effectively. Compliance? No reason to cut corners. The one cost that can still mount up is trading-so advisors are encouraged (through pricing) to focus on solidifying relationships through consultation, rather than performance.

FOUNDING PRINCIPLES

Wealth Manager Access was a long time aborning. Bob Cogan, now CAI's vice chairman, began formulating the idea more than three years ago-long before the meltdown had the rest of the world rethinking things.

During an interview in January 2008, Cogan voiced concerns that the services an independent broker-dealer could provide were becoming commodified-and perhaps even irrelevant. Competition and margin compression were big problems, but worse still was the fact that broker-dealers didn't have enough to offer that was unique. How could a small to mid-size B-D compete with the behemoths, if not on price? Would it be possible to offer something distinctive, he wondered, or would B-Ds suffer from what pediatricians call failure to thrive?

A little over a year later, Cogan and Lynch rolled out Wealth Manager Access-into a storm. Nevertheless, advisors were attracted to the new model. "We didn't anticipate the market," he says. (Who did!) "But it was almost fortuitous because advisors were in motion." Lynch said in December that 350 advisors had migrated over.

AHEAD OF THE PACK?

Thus far, no other broker-dealers have tried the CAI way. Advisors are settling in to a new, less terrifying market and economy, at least for now. Advisors seem to be focusing less on introspection and innovation, and more on seeking growth. As we go to press, a shifting balance of power in the Senate may take financial regulatory reform, once a goad for the entire industry to clean up its act, off Washington's to-do list.

And Wealth Manager Access remains a work in progress. The question remains whether they are ahead of the crowd, or off on a tangent. "We have to get ahead of regulatory reform and show leadership," Lynch says. "Reps and advisors are ahead of us and they know what they need. They'll decide how long we're relevant or they'll replace us. We can innovate or be part of history."